Gold may rally to a record as the European sovereign debt crisis escalates, with Greece “going under” and investors losing confidence in paper currencies, said David Crichton-Watt, manager of Phoenix Gold Fund Ltd.
“I would be surprised if the gold price doesn’t go over $1,500 this year,” said Crichton-Watt, whose $100 million fund returned 122 percent last year. Gold, which touched a record $1,226.56 an ounce in December, may also benefit from resurgent inflation, Crichton-Watt said in a phone interview today.
The Greek public-debt crisis has infected financial markets worldwide, hurting equities and boosting gold, amid rising investor concern the nation may default. Gold was benefiting from safe-haven buying as contagion risks expanded, according to a report from Edel Tully, an analyst at UBS AG. Holdings in the SPDR Gold Trust climbed to an all-time high this week.
“Now we’ve got Greece going under and a lot of other countries looking likely to follow,” said Kuala Lumpur, Malaysia-based Crichton-Watt, 62. “It’s really a declining confidence in paper currencies,” Crichton-Watt said.
Bullion has risen 30 percent in the past year as investors from central banks to pension funds and individuals sought protection against currency debasement and inflation after governments spent $2 trillion to salvage the global economy from the worst recession since World War II. The precious metal has posted nine straight yearly gains from 2001.
Gold for immediate delivery advanced as much as 0.5 percent to $1,171.18 an ounce today after reaching $1,174.48 yesterday, the highest price since Dec. 4. Bullion priced in euros, sterling and the Swiss franc rose to records for a second day yesterday after Spain’s credit rating was cut by Standard & Poor’s, sparking concern that the deficit crisis is widening.
“Gold will rise together with the dollar as there will be a shift in funds into safer assets,” said Wallace Ng, executive director of the commodity derivatives team at Fortis Nederland NV in Hong Kong. Bullion typically moves counter to the U.S. currency. The metal may reach $1,300 this quarter, said Ng.
Phoenix Gold, managed under AIMS Asset Management Bhd., holds shares in gold-mining companies, physical gold as well as futures and options. It’s posted a year-to-date return of 5.5 percent, said Crichton-Watt. Hedge funds on average returned 2.6 percent in the first quarter, according to Hedge Fund Research Inc., a Chicago-based researcher.
Credit-default swaps on the debt of Greece have climbed to a record as the 16 nations making up the euro zone have failed to bridge economic and political differences over a rescue package for the nation. The euro fell to a one-year low of $1.3115 yesterday.
“If gold prices go up, gold-mining companies do extremely well,” Crichton-Watt said. “We are long bullion, long gold- mining companies. It’s dangerous to be short at the moment,” he said. Among holdings are Australian-listed Azumah Resources Ltd. and Kingsgate Consolidated Ltd. in Thailand.
Crichton-Watt moved to Kuala Lumpur in 2000 from Hong Kong to avoid pollution and take advantage of a tax incentive offered by the government for overseas fund managers, he said. The fund, set up in 2001, was named after the bird from Greek mythology as gold was expected to come back like a phoenix from the ashes after 20 years of weak prices, he said.
Nouriel Roubini, the professor who forecast the U.S. recession more than a year before it began, said yesterday that Greece’s problems may be “the tip of the iceberg” for a wider range of fiscal problems. Governments may print money to “monetize” their debts, fueling inflation, Roubini said.
Holdings in the SPDR Gold Trust, the biggest exchange traded fund backed by bullion, expanded for a third day to a record 1,152.91 metric tons yesterday, according to figures on the company’s Web site.
“There’s a potential for further price gains in gold as an inability by some European countries to service debt fuels flight-to-quality sentiment,” said Chris Yoo, head of the global derivatives team at Samsung Futures Inc. in Seoul.
To contact the reporter on this story: Kyoungwha Kim in Singapore at Kkim19@bloomberg.net